Strategic Withholding and Imprecision in Asset Measurement

69 Pages Posted: 18 Dec 2018 Last revised: 24 Jan 2019

See all articles by Jeremy Bertomeu

Jeremy Bertomeu

Washington University in St. Louis - John M. Olin Business School

Edwige Cheynel

Washington University in St. Louis - John M. Olin Business School

Davide Cianciaruso

HEC Paris - Accounting and Management Control Department

Date Written: November 30, 2018

Abstract

How precise should accounting measurements be, if management has discretion to strategically withhold? We examine this question by nesting an optimal persuasion mechanism, which controls what measurements are conducted, within a voluntary disclosure framework a la Dye (85) and Jung and Kwon (1988). In our setting, information has real effects because the firm uses it to make a continuous operating decision, increasing in the market's belief. Absent frictions other than uncertainty about information endowment, we show that imprecision can reduce strategic withholding but always decreases firm value. We then examine plausible environments under which, by contrast, there is an optimal level of imprecision featuring coarseness at the marginal discloser. We offer additional implications in the contexts of enforcement against strategic withholding and financing with collateralized assets.

Keywords: real effects, imprecision, voluntary disclosure, accounting standards

JEL Classification: G3, M4

Suggested Citation

Bertomeu, Jeremy and Cheynel, Edwige and Cianciaruso, Davide, Strategic Withholding and Imprecision in Asset Measurement (November 30, 2018). HEC Paris Research Paper No. ACC-2018-1324, Available at SSRN: https://ssrn.com/abstract=3293414 or http://dx.doi.org/10.2139/ssrn.3293414

Jeremy Bertomeu (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Edwige Cheynel

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Davide Cianciaruso

HEC Paris - Accounting and Management Control Department ( email )

Jouy-en-Josas
France

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